Ben Bernanke: US Economy Not Out of the Woods

Bernanke thinks the US economy is still at risk if Congress drops the ball.

The US economy "is not out of the woods" according to Federal Reserve chairman Ben Bernanke, speaking at a question and answer session at the University of Michigan Monday.

"I want to be clear that while we've made progress, there's still quite a ways to go before we'll be satisfied...we are approaching a number of other critical watersheds."

Bernanke noted that politicians are yet to agree a deal that would remove automatic spending cuts that were postponed to the start of March as part of the fiscal cliff deal, nor is there agreement on raising the $16.4 trillion debt ceiling."

"It's very, very important that Congress takes the necessary action to raise the debt ceiling to avoid a situation where our government doesn't pay its bills," Bernanke said.

"Congress should act as soon as possible," says a letter dated yesterday from Treasury secretary Timothy Geithner to Republican House of Representatives speaker John Boehner, "to extend normal borrowing authority in order to avoid the risk of default and any interruption in payments."

The letter adds that the Treasury expects its extraordinary measures designed to keep the US from hitting the debt limit will be exhausted "between mid-February and early March".

"The full faith and credit of the United States is not a bargaining chip," President Obama told a press conference yesterday. "[The Republicans] will not collect a ransom in exchange for not crashing the American economy."

"The American people," responded Boehner after the press conference, "do not support raising the debt ceiling without reducing government spending at the same time."

"We likely will see more protracted bickering in the weeks ahead," says Ed Meir, metals analyst at INTL FCStone. "This means that the gold market may go through a repeat of what we saw in December, namely, varying 'mood swings' that will result in directionless trading."

Ben Traynor

Ben Traynor is a Cambridge economics graduate and professional writer with a specialist interest in monetary economics. Ben also serves as editor of Gold News, the analysis and investment research site from gold ownership service BullionVault.